ECON 1B - Microeconomics - Chapter 16 Quiz: Pricing Strategy
Some consumer electronic products such as plasma TVs, DVD players and digital cameras, are introduced at very high prices but over time, their prices start falling (beyond what could be attributed to falling costs as companies take advantage of economies of scale and cheaper technologies). Which of the following is the best explanation for this observation?
Answer: After satisfying the demand for early adopters, firms lower price to attract the more price sensitive consumers. - Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods. - More firms are likely to enter the consumer electronic market over time, forcing market prices down. - Early adopters of these new products typically have a higher demand and higher income compared to those who are willing to wait. - After satisfying the demand for early adopters, firms lower price to attract the more price sensitive consumers.
Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical. Refer to Figure 16-3. Suppose Chantal charges all her customers a uniform price of $10 for a haircut. Which of the following statements is true?
Answer: Chantal is selling more than the profit-maximizing quantity of haircuts in market B. - Chantal will earn a greater profit through uniform pricing than if she practices price discriminates. - Chantal is maximizing revenue in market B. - Chantal is selling less than the profit-maximizing quantity of haircuts in market B. - Chantal is selling more than the profit-maximizing quantity of haircuts in market B.
Erin and Deidre, two residents in Ithaca, New York, are planning a trip to Boston. Erin, the sales manager for a large retailer, has to attend a business meeting. Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives. Whose demand curve for air travel is likely to be more elastic?
Answer: Deidre - Erin - There is no difference in their price elasticities of demand. - The elasticity of the demand curves for Erin and Deidre cannot be determined without more information. - Deidre
Arnold Marion, a first-year economics student at Fazer College, was given an assignment to find an example of price discrimination and present it to his class. When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week. We paid $25 each for our seats in left field. My aunt and uncle paid $50 each for their tickets; they sat five rows behind the first base dugout. This is an example of price discrimination since we paid different prices for the same product, and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?
Answer: He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. - He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets. - He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. - He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. - He would agree with Arnold that he had found an example of price discrimination, but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid.
Which of the following is a reason why a firm would not engage in price discrimination?
Answer: Some firms are not able to segment the market for the products they sell. - Some firms are not able to segment the market for the products they sell. - Some firms do not want to violate the law of one price. - Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination. - The transactions costs associated with selling the product exceed the price of the product.
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population. Figure 16-2 shows the demand curves for the two groups of customers. Refer to Figure 16-2. Suppose Plato Playhouse charges a single price of Pd for each performance. Which of the following statements is true?
Answer: The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. - The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. - The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. - The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. - The company is selling less than the profit-maximizing quantity in both markets.
Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle for $60. Which of the following statements is true?
Answer: The transaction has made Lou and Kyle better off. - The transaction has made Lou better off and Kyle worse off. - The transaction has made Lou and Kyle better off. - It is not possible for Kyle to enjoy any consumer surplus from this transaction. - The transaction is economically inefficient.
Toot Sweets Bakery sells freshly baked muffins from 6:30 am at $1.20 per muffins. By 4 pm, the remaining muffins are marked down to $0.60 each. Which of the following statements is true?
Answer: Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm. - Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm. - Toot Sweets is trying to minimize its loss. - Toot Sweets has underestimated the demand for its muffins. - Toot Sweets is trying to prevent the opportunity to make arbitrage profit.
When you buy at a low price in one market then sell at a higher price in another market you are engaging in
Answer: arbitrage. - price discrimination. - an antitrust prohibited practice. - arbitrage. - odd pricing.
Which of the following are necessary condition(s) for successful price discrimination? a. zero transaction cost b. a perfectly competitive market structure c. an imperfectly competitive market structure d. at least two different markets with different price elasticities of demand e. at least two different markets with different price elasticities of supply
Answer: c and d only - a and c only - a, c, d and, e only - a, b, and d only - c and d only
If a firm could practice perfect price discrimination, it would
Answer: charge every buyer a different price. - charge a price based on the quantity of a product bought. - charge every buyer a different price. - allow resale of its product. - use odd pricing.
If a monopolist practices perfect price discrimination
Answer: consumer surplus will be zero. - the firm will break even in the long run. - producer surplus will equal consumer surplus. - consumer surplus will be zero. - consumers surplus will be less than the deadweight loss.
A firm that can effectively price discriminate will charge a higher price to
Answer: customers who have the more inelastic demand for the product. - buyers who belong to the largest market segment. - customers who have the more elastic demand for the product. - customers who have the more inelastic demand for the product. - buyers who are members of the smallest market segment.
Publishers practice price discrimination when they sell books at high prices to
Answer: early adopters. - early adopters. - online book sellers. - large chain bookstores. - local bookstores.
With perfect price discrimination, the marginal revenue curve
Answer: is equal to the demand curve. - is below the demand curve. - is above the demand curve. - is equal to the demand curve. - is horizontal.
Price discrimination
Answer: is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. - is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. - is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer. - is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. - is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers.
The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides. This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.
Answer: more price elastic - less price elastic - more income elastic - more price elastic - less income elastic
Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill. This is an example of
Answer: price discrimination. - arbitrage. - two-part tariff pricing. - price discrimination. - odd pricing.
Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical. Refer to Figure 16-3. What prices are charged in the two markets?
Answer: price in market A = $10; price in market B = $15 - price in market A = price in market B = $15 - price in market A = price in market B = $10 - price in market A = price in market B = $5 - price in market A = $10; price in market B = $15
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population. Figure 16-2 shows the demand curves for the two groups of customers. Refer to Figure 16-2. What is the price charged in the two markets?
Answer: price in the student market = Pc; price in the non-student market = Pe - price in the student market = price in the non-student market = Pb - price in the student market = Pc; price in the non-student market = Pe - price in the student market = Pd; price in the non-student market = Pe - price in the student market = price in the non-student market = Pa
The law of one price states
Answer: that identical products should sell for the same price everywhere. - that all customers should pay the same price. - federal and state statutes that prohibit price discrimination. - government regulation of prices for all firms. - that identical products should sell for the same price everywhere.
A price-discriminating firm charges the highest price to
Answer: the group with the least elastic demand. - the group with demand that is unit-elastic. - the group with the largest demand. - the group with the most elastic demand. - the group with the least elastic demand.
Which of the following undermines a firm's ability to engage in price discrimination?
Answer: the inability to prevent resale of the product from one market segment to another - the seller's ability to segment the total market - the inability to prevent resale of the product from one market segment to another - the seller's market power - buyers having different elasticities of demand for the product
Successful price discrimination cannot take place if
Answer: the market is perfectly competitive. - the market is perfectly competitive. - the demand curve facing the firm is downward-sloping. - customers are not able to resell the product. - the market can be segmented into different buyer groups.
Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market. He later resold these items on eBay. The profits Harvey earned from these sales are
Answer: the result of arbitrage. - the result of arbitrage. - subject to a retail profits tax. - accounting profits but not economic profits. - are not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items.
Which of the following products allows the seller to identify different groups of consumers (segment the market) and practice price discrimination?
Answer: tickets to matinee shows at a movie theatre - a cafe latte sold at Starbucks - tickets to matinee shows at a movie theatre - clothing items sold through Macy's Department Store - a hamburger sold at Burger King
According to the law of one price, identical products should sell for the same price everywhere if
Answer: transactions costs are zero. - there are no tariffs or other restrictions on imports or exports. - consumers have knowledge of the prices charged for products in different markets. - firms can prevent consumers from engaging in arbitrage. - transactions costs are zero.
The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called
Answer: transactions costs. - implicit costs. - selling costs. - exchange costs. - transactions costs.
